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HMRC internal manual

Capital Allowances Manual

Plant and Machinery Allowances (PMA): buildings and structures: expenditure on integral features: sales between connected persons and Intra-group transfers

CAA01/s33A,S33B; FA08/Sch 26, paragraphs 15-17

Anti-avoidance provision: sale between connected persons

FA08 introduced an anti-avoidance provision to prevent connected persons from entering into transactions, simply with a view to obtaining WDAs on historic expenditure on assets, which are now defined as ‘integral features’, but which did not qualify for any WDAs when the current owner acquired the assets.

For example, most cold water and electrical systems in commercial offices did not previously qualify for any PMAs or WDAs, but will in future normally qualify for 10% WDAs as ‘integral features’, when the qualifying expenditure is incurred on or after 1 April 2008 (CT) or on or after 6 April 2008 (IT). The rate of WDA for the special rate pool is reduced from 10% to 8% from 1 April 2012 (CT) and 6 April 2012 (IT).

The anti-avoidance provision prevents expenditure on existing assets, which did not previously qualify for allowances (because the expenditure was incurred before 1 or 6 April 2008), being transferred to a connected person on or after the relevant date, such that a claim would otherwise have been possible on the whole of the original (pre-1 or 6 April 2008) expenditure (FA08/Sch 26, para 15). It should, of course, be borne in mind that the parties in this situation could not make a S.198 or S.199/CAA01 election as the seller did not incur qualifying expenditure.

Saving for intra-group transfers

FA08 also introduced a provision (FA08/Sch 26, para 16) to enable companies that are members of the same group to transfer, on or after 1 April 2008, property containing a ‘pre-commencement integral feature or features’ between themselves

  • Without giving rise to either a balancing allowance or balancing charge for the seller in respect of the integral feature; and
  • So that the buyer’s expenditure on that integral feature is not treated as ‘special rate expenditure’ and, if allocated to a pool, is allocated to the buyer’s main rate pool.

However, this stand-in-the-shoes type treatment only applies where both parties jointly elect within two years of the date of the sale.

For the purposes of this provision, whether two companies are members of the same group is to be determined in accordance with TCGA 1992/S.170(3) to (6). And a ‘pre-commencement integral feature’ is one on which the seller incurred qualifying expenditure before 1/4/08, or after that date, if allocated to the seller’s main pool because of a previous election under this provision.

The effect of the election for the purposes of making subsequent allowances and charges

The provisions also ensure that if the buyer subsequently sells the integral feature, then the correct amount of disposal proceeds is taken into account in the main pool.

For example, if two companies in the same group: Sister Ltd and Brother Ltd, elect on or after 1/4/08 for a lift in a building that was installed by Sister Ltd for a cost of £80,000, to be sold with the building to Brother Ltd for its tax written-down value of (say) £16,000, then when Brother Ltd later sells the lift (as part of the sale of the building outside the group) - when the market value of the lift is (say) £30,000, the part of the sale proceeds that relates to the lift is not capped at £16,000 and Brother Ltd must bring in the full amount of £30,000 (FA08/Sch 26, para 17).